Italy’s incentive programme for gas and LNG operators is out of step with market reality, due to its championing of investments in infrastructure projects that will be underutilised.
New Institute for Energy Economics and Financial Analysis (IEEFA) research said better alignment of government and regulatory support with the markets was needed.
The existing regulatory programme may encourage excessive capital expenditure on redundant gas and LNG infrastructure, despite Italy’s recent declining demand for both fuels.
Italy’s gas demand dropped 19% from 2021 to 2024, while LNG imports fell 12% last year.
However, the country is on track to overbuild its regasification capacity, which is set to triple between 2022 and 2026.
As demand continues to decline, Italy’s LNG consumption could be less than one-third of its import capacity by 2030, IEEFA claimed.
Domestic energy company, Snam is the main beneficiary of this incentive scheme. The company’s regulated revenues increased by €272 mill (20.1% year-on-year) in the first half of 2024.
Of this, the vast majority (€160 mill) was from a higher weighted average cost of capital and regulated asset base growth in its gas transportation and storage segments.
In 2023, Snam’s regulatory revenues increased by €385 mill.
“Incentives to invest in infrastructure must be driven by demand. In the case of Italy, it’s currently the other way around, with regulated revenues driving infrastructure build out even if there is not enough demand to justify it,” said Ana Maria Jaller-Makarewicz, IEEFA’s Lead Energy Analyst, Europe.
“Time’s up for Italy to acknowledge its declining gas demand and that of its European neighbours. The country’s ambition to become a gas hub risks jeopardising the competitiveness of its energy sector by mis-allocating government support to gas projects that don’t offer long-term energy security solutions,” she said.
“Snam’s over-investment trend, shown in this straightforward work by IEEFA, is worrying. Any consistent de-carbonisation commitment requires dropping investments in gas infrastructure.
“To reduce the risk of stranded assets, investors and authorities should plan for an accelerated depreciation of existing gas infrastructure,” added Michele Governatori, Head of External Relations, Energy, at ECCO.
Snam owns 61% of Italy’s operational LNG terminals and 100% of two planned new terminals. The company supplies 95% of the Italian gas market and is the largest owner of gas pipelines in the European Union, with a combined length of nearly 38,000 km.
Regulatory support
In 2021, Italy’s regulator ARERA launched its Regulation by Objectives of Expenditure and Service (ROSS) programme to encourage accountability, support the energy transition and enhance performance-based incentives.
Despite this, Snam’s investments and regulatory revenues from expanding its gas operations have continued to grow.
At the same time, the tariffs that Italian domestic customers pay for natural gas remain among the highest in the EU, IEEFA said.
